So presumably this means the tax is regressive - low earners spend more of their income and so end up paying disproportionately more VAT, right?

Defining the poor

Not necessarily.

The IFS questions whether this traditional incomes-based approach is accurate.

They point out that a lot of low income households do not meet most people's definition of "poor".

The bottom 10% of earners includes pensioners living off their savings, wealthy individuals without a job, or those with volatile incomes who had a fallow year.

For this reason, the Chancellor may be right that we should look at how much people spend - rather than what they earn - as a more accurate measure of their financial position.

So why do higher spenders pay proportionately more VAT?

Bare necessities

Partly it is to do with what they spend their money on.

Many basic items, such as food and children's clothing, are not subject to VAT, while household energy bills are taxed at a lower 5% rate - and that lower rate is not being raised.

Lower-spending - and lower-income - families are likely to spend a bigger share of their money on these basic items, so VAT tends to be a smaller percentage of their household bills.

Moreover, households facing tighter finances might be expected to spend less on high-VAT items such as a new car or new furniture, cushioning the blow.

Nonetheless, some items that households may deem essential are taxed at the standard rate, which has just risen - notably petrol, which was also hit by a New Year rise in fuel duty.

Hey big spender

All this sounds reasonably progressive.

But there could also be something else going on in the data, because a lot of spending can be quite lumpy.

A "big spender" in one year may be someone who has just moved into a new home and bought a lot of furniture and other big ticket items.

Or it could be someone who has just bought a new car on credit to last the next 10 years.

This person would show up towards the higher end of the spending scale, even though they may not earn much, and in other years they would not spend so much.

And all of those big one-off purchases would have been subject to VAT, meaning this person would be hard-hit by the VAT rise.

Alternatives

Some may say these arguments are a bit academic and ignore Mr Osborne's point that VAT is more progressive compared with other possible revenue-raising options.

Labour's claim of unfairness is questioned by Adrian Houstoun, from the chartered accountancy firm Kingston Smith.

"If we weren't to raise this amount of money from the VAT rise, it would have to be from something like National Insurance," he says.

He notes that - unlike with National Insurance, which is levied on people's incomes - households can reduce their VAT bill, because they have a small degree of flexibility over what they spend their money on.

Moreover, the way in which National Insurance is levied may be considered more regressive than VAT.

Employees' National Insurance Contributions drop from 11% of earnings to only 1% above a threshold of just under £44,000 - meaning top earners pay a lower all-in rate.

Contrast that with VAT, where everyone pays the same tax rate for the same items.

Yet the government already plans to increase National Insurance from this April, and is doing it in a way that makes it less regressive - by raising the rates to 12% and 2%.

Moreover, the government did have another more unambiguously progressive option, which was to raise more money through income tax.

Income tax bands and allowances are specifically designed to ensure the poorest pay least.